IATA bumps up global profit estimate

Monday, June 03, 2013

The International Air Transport Association bumped up its global airline profitability by $2.1 billion to a projected $12.7 billion in 2013. The industry generated $7.6 billion in profits last year.
Despite the increase, and a new prediction of $711 billion in revenues this year, the industry’s profit margin will remain low at 1.8 percent. In 2010, the industry saw a profit margin of 3.3 percent, its highest since 2001 and best since 2007’s profit margin of 2.9 percent. This year’s margin, which is relatively weak, would nonetheless come in as the third highest margin in more than a decade.
Much of this profitability will be made on the passenger side of the business, IATA found, as the cargo divisions of airlines are still hurting. The association predicts that freight volumes will stagnate this year at 52.1 million tons, pointing out that since 2010’s annual result of 50.7 million tons, there has basically been no growth at all in the sector. Cargo yields declined by 6.3 percent last year, and IATA expects yields to drop by 2 percent in 2013.
The price of jet fuel is also making profits difficult to come by. IATA said the average price of Brent crude will be $108 a barrel for the year; even though this is a slight dip from the previously forecasted $109.50 per barrel, it is still a significant price to pay. In 2006, the price of a barrel of Brent crude averaged $65.10, and the 55-percent increase in jet fuel prices since then were the biggest factor in a 23-percent jump in unit costs for airlines.
In the larger economic picture, IATA predicts that global GDP will grow at half the rate seen in 2006, finishing the year at 2.2 percent. Trade will bump up by 4 percent this year, a nice increase over 2012’s 2.5-percent growth rate.
“While trade among developed economies continues in the doldrums as a result of European economic uncertainty, it is booming on routes linked to the emerging economies,” it said in a statement. “And this closely reflects the pattern of growth for the airline industry.” - Jon Ross